Restoration Hardware 2015 Annual Report Download - page 21

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On the other hand, we may expend some significant portion of our capital on investments in our business or the acquisition of
other businesses or on other growth initiatives. In addition, our capital needs may change in the future due to changes in our business
or new opportunities that we choose to pursue. We have invested significant capital expenditures in remodeling and opening new
Galleries, and these capital expenditures have increased and will continue to increase in fiscal 2016 with potential increases in
successive future periods as we open additional next generation Design Galleries, which may require us to undertake upgrades to
historical buildings or construction of new buildings.
During fiscal 2015, we spent $133.5 million for capital expenditures, including the acquisition of buildings and land.
Additionally, we made payments of $20.0 million in fiscal 2015 to escrow accounts for future construction of next generation Design
Galleries. We anticipate our gross capital expenditures to be approximately $175 million to $200 million for fiscal 2016. We plan to
continue our growth and expansion, including opening next generation Design Galleries in select major metropolitan markets,
pursuing category extensions of our brand, and exploring new business areas. We own the building and land for our Gallery in San
Francisco and for one of our Toronto Galleries, as well as the location of our wine tasting room in Yountville, California, which is
expected to be the location of a Design Gallery in the future, but to date we have principally relied upon leases with landlords for our
other locations. As we develop new Galleries, as well as potentially other strategic initiatives, in the future, we may explore other
models for our real estate, which could include further purchases of, or joint ventures or other forms of equity ownership in, real estate
interests associated with new sites and buildings. These approaches might require greater capital investment than a traditional store
lease with a landlord.
In certain circumstances, we may be required to repay the two series of convertible senior notes that we issued in 2014 and 2015
with cash payments. See Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Convertible Senior Notes. Additionally, at the time the notes become due, the trading price of our
common stock may be such that we may find it necessary to settle the notes in cash.
There can be no assurance that we will have sufficient financial resources, or will be able to arrange financing, to pay the
amount of cash due if holders surrender their notes for conversion. In addition, agreements governing any debt may restrict our ability
to make each of the required cash payments even if we have sufficient funds to make them. Furthermore, our ability to purchase the
notes or to pay cash upon the conversion of the notes may be limited by law or regulatory authority. In addition, if we fail to purchase
the notes, to pay special interest, if any, due on the notes, or to pay the amount of cash due upon conversion, we will be in default
under the respective indentures governing the notes, which in turn may result in the acceleration of other indebtedness we may then
have. If the repayment of the other indebtedness were to be accelerated, we may not have sufficient funds to repay that indebtedness
and to purchase the notes or to pay the amount of cash due upon conversion.
The need to repay such convertible senior notes could cause us to incur additional borrowings or the sale of additional notes to
investors. We may also experience cash flow shortfalls in the future, and we may otherwise require additional external funding, or we
may need to raise funds to take advantage of unanticipated opportunities, to make acquisitions of other businesses or companies or to
respond to changing business conditions or unanticipated competitive pressures. Any weakening of, or other adverse developments in,
the U.S. or global credit markets could affect our ability to manage our debt obligations and our ability to access future debt. We
cannot assure you that we will be able to raise necessary funds on favorable terms, if at all, or that future financing requirements
would not be dilutive to holders of our capital stock. If we fail to raise sufficient additional funds, we may be required to delay or
abandon some of our planned future expenditures or aspects of our current operations.
If we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.
The success of our business depends upon the continued service of our key personnel, including our Chairman and Chief
Executive Officer, Gary Friedman, as well as other members of our senior management responsible for merchandise assortment and
other business operations. The loss of the services of our key personnel could make it more difficult to successfully operate our
business and achieve our business goals. Our key officers and directors periodically travel together while on company business. We do
not have a policy that prohibits key officers and directors from flying together, whether flying commercially or in our corporate
aircraft. In addition, we do not maintain key man life insurance policies on any of our key personnel. As a result, we may not be able
to cover the financial loss we may incur in losing the services of any of our key personnel.
Competition for qualified employees and personnel in the retail industry is intense, particularly in the San Francisco Bay Area
where our headquarters are located, and we may be unable to retain personnel that are important to our business or hire additional
qualified personnel. The process of identifying personnel with the combination of skills and attributes required to carry out our goals
is often lengthy. Our success depends to a significant degree upon our ability to attract, retain and motivate qualified management,
marketing and sales personnel, and store managers, and upon the continued contributions of these people. We cannot assure you that
we will be successful in attracting and retaining qualified executives and personnel.